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Market update: GBP slides ahead of BoE rate decision


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The British pound made new lows last week and momentum might be building; the Bank of England is anticipated to lift rates later this week by 25 basis points, while sterling is staring at some untested support levels.

 

original-size.webpSource: Bloomberg

 

Daniel McCarthy | Strategist, | Publication date: Monday 18 September 2023 05:55

GBP/USD technical analysis

The British pound has slipped to its lowest level in three months ahead of the Bank of England (BoE) monetary policy decision this Thursday. Interest rate markets see around an 80% chance of a 25 basis point (bp) hike to lift the cash rate to 5.50%, the highest level since prior to the financial crisis in 2008.

If the bank surprises markets with anything other than 25 bp of tightening, sterling volatility might kick off.

GBP/USD made a low at 1.2379 on Friday and finished the week near there without testing potential support at the early June low of 1.2369. It has steadied so far on Monday but might be vulnerable after closing below the 200-day simple moving average (SMA).

The 200-day SMA may offer resistance ahead of the breakpoints at 1.2445, 1.2550 and 1.2620. Above there, the prior peaks at 1.2746, 1.2800 and 1.2819 may offer resistance. Resistance could also be near the high at the psychological level of 1.3000, which concurs with a historical breakpoint.

Further up, the 16-month high of 1.3142 is also just below some breakpoints in the 1.3150 – 1.3160 area and may offer a resistance zone.

A bearish triple moving average (TMA) formation requires the price to be below the short-term SMA, the latter to be below the medium-term SMA and the medium-term SMA to be below the long-term SMA. All SMAs also need to have a negative gradient.

When looking at any combination of the 10-, 21-, 55- and 100-day SMAs, the criteria for a TMA have been met and might suggest that bearish momentum is evolving. Support could be at the previous lows and breakpoints at 1.2369, 1.2308, 1.2270, 1.2148, 1.2011 and 1.1804.

GBP/USD daily chart

 

original-size.webpSource: TradingView

EUR/GBP technical analysis

EUR/GBP has traded between 0.8493 and 0.8701 for four months in what appears to be a range trading environment. The 10-, 21-, 34-, 55- and 100-day SMAs are all grouped together between 0.8572 and 0.8607, which may confirm a lack of direction for EUR/GBP.

If the price has a meaningful move away from either side of that range a breakout trade opportunity may evolve. To learn more about breakout trading, click on the banner below. Support might be at the prior lows and breakpoints of 0.8524, 0.8504, 0.8493, 0.8486 and 0.8481.

On the upside, the 100-day SMA might be pivotal for direction. It was tested on two occasions in July and August and was briefly breached a few times last week before retreating back below it. A sustained move above it could see bullish momentum evolve. Further up, resistance might be at the previous peaks at 0.8630, 0.8669, 0.8701 and 0.8735.

EUR/GBP daily chart

 

original-size.webpSource: TradingView

 

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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